Comprehensive Guide: Mastering Fundamental Stock Market Knowledge for Beginners Entering the Market

In recent years, the stock market has always been a focal point for investors. When production and commercial activities face many difficulties, investing in stocks has become an attractive option, drawing millions of participants. In 2022, the market continued to develop strongly, and to participate effectively, first-time (F0) investors need to equip themselves with basic knowledge of stocks, understand the rules of the game, and build suitable strategies. This article will summarize important concepts and essential information so you can grasp the fundamentals of the market.

What is stock? Definition and main types

According to the Securities Law No. 70/2006/QH1, securities are documents or evidence confirming the lawful rights of the owner over assets or equity issued by an organization. Simply put, securities are financial instruments representing ownership rights or debt rights.

Knowledge about stocks requires understanding the main types, including:

• Shares, bonds, fund certificates
• Derivative securities
• Warrants, rights to purchase shares, deposit certificates
• Other types of securities as regulated by the state

Shares - the most common type of security

Shares are the most widely known securities. They confirm ownership of a part of the share capital of the issuing company or enterprise. There are two main types: common shares (linked to business results, non-fixed dividends) and preferred shares (with preferential dividends or voting rights).

Shares are issued in two forms: paper form (with company name, par value, issuance year…) or electronic form (information stored on computer systems).

Bonds - debt instruments

Bonds are securities confirming the rights of the holder and the debt payment obligation of the issuer (company, organization, or government). Essentially, they are a borrowing instrument, with the issuer committed to paying both principal and interest within a specified period. Bondholders receive fixed interest regardless of capital utilization results and do not have management rights.

Fund certificates - collective investment opportunities

Fund certificates confirm ownership when investors contribute capital to a public fund. A public fund is an investment fund where many investors pool resources to invest together in securities or other assets to earn profits. When participating in a fund, investors must buy fund certificates to prove their capital contribution.

Derivative securities - more complex instruments

Derivative securities are contracts that specify the rights and obligations of the parties involved, with value dependent on one or more underlying assets (securities, indices, etc.). Includes options, futures, and forward contracts. They differ from underlying securities in that: trading occurs in the derivatives market, there is no limit on issuance volume, settlement occurs at a specified future time, and profits are determined daily.

Warrants and rights to purchase shares

Warrants are secured securities issued by securities companies, often accompanied by an underlying security code. Investors holding warrants have the right to buy the underlying securities at a predetermined price on the maturity date.

Rights to purchase shares are issued by companies to prioritize existing shareholders, allowing them to buy additional shares at a price lower than the market price. Each existing share will come with a purchase right.

Depository certificates - international tools

Depository certificates are created when shares of foreign companies are deposited at a depository bank. The bank then issues depository certificates in quantities and prices depending on the ratio between the issued certificates and the underlying shares.

How does the stock market operate

Concept and market structure

The stock market (stock exchange) is where investors conduct buying and selling transactions and exchange financial instruments at the trading floor or through brokerage firms. It is divided into two main types:

Primary market: Where organizations and investment funds raise capital by issuing shares for the first time.

Secondary market: Where shares after issuance are traded among investors. Transactions here do not generate new money but only change ownership rights among investors.

The role of the stock market in the economy

The stock market plays a crucial role in economic development:

• Promoting the growth of joint-stock companies through information dissemination, business valuation, underwriting, and distribution of securities, attracting investor capital (fundraising)
• Providing criteria for investors to evaluate business development activities
• Offering high liquidity for financial instruments
• Helping the government and enterprises raise foreign capital through bond and stock issuance

Essential vocabulary and terminology about stocks

Beginners need to grasp some basic concepts below.

Important market terms

• Listed company: A company that offers shares to the market and is listed on the stock exchange
• IPO (Initial Public Offering): First-time securities issuance
• Market capitalization: Total market value of a company based on its outstanding shares
• Offer price: The initial offering price of shares
• Stock portfolio: The collection of stock codes in an investor’s account
• Yield (Yield): Total dividends received, i.e., profit from holding stocks
• Annual report: The company’s yearly report
• Alpha coefficient: Return rate adjusted for risk
• Beta coefficient: Risk measure of a stock or portfolio
• Price to Book Ratio: Comparing market price with book value per share
• Bankruptcy risk ratio: Helps assess risk and predict the likelihood of a company’s bankruptcy
• Dividend ratio: Shows the relationship between received dividends and purchase price

Basic trading commands

• Limit order (LO): Buy/sell at a specified or better price
• Market order (MP): Buy at the lowest selling price or sell at the highest current price
• ATO order: Order to determine opening price (applicable only on Ho Chi Minh Stock Exchange)
• ATC order: Order to determine closing price at 14:45 (applicable on both exchanges)
• PLO order: Order at the closing price after ATC (applicable only on Hanoi Stock Exchange)
• Break: Stock price rises sharply above the previous price range
• Long (Buy up) / Short (Sell down): Derivative trading with upward or downward trend
• Stock filtering: Using criteria (uptrend, accumulation, market cap, liquidity) to find stocks meeting standards
• Safety margin: The difference between market price and intrinsic value

Types of prices in stock trading

• Par value: The face value printed on the security at issuance
• Market price: Actual buying/selling price in the trading market
• Listing price: The initial listed price during the first trading session
• Matching price: The transaction price when buy/sell orders are executed
• Opening price: The previous day’s closing price
• Floor price / Ceiling price: The lowest/highest price during a trading session
• Settlement date (T+3): Three working days after matching, when shares or money are transferred
• Price trend: The main types are uptrend (Uptrend), downtrend (Downtrend), sideways (Sideway)

Basic trading definitions

• Index (Index): A statistical measure of securities based on a list of stocks with certain weights. For example: VNIndex represents the entire HOSE market, VN30 is an index of the 30 largest-cap stocks
• Margin: Margin trading, where investors borrow money from securities companies to buy stocks
• Trading volume: The number of stocks traded within a certain period (e.g., in one day)
• Short selling: Selling securities not owned by borrowing from others and returning them later
• Price fluctuation: On HOSE, +/- 7%; on HNX, +/- 10% compared to the reference price (previous day’s closing price)

Main participants in the stock market

• Issuer: Issues securities to raise capital
• Investor: The person executing buy/sell transactions, including individual and institutional investors (investment companies, insurance companies, banks, etc.)
• Securities company: Supports management, consulting, brokerage, underwriting
• Related organizations: State Securities Commission, stock exchanges, credit rating agencies, securities computing service companies

Basic principles of stock market operation

Five principles every investor should understand:

Competition principle: Issuers compete to sell good securities, investors compete to buy at good prices and high profits.

Fairness principle: All participants follow the same regulations.

Transparency principle: Issuers must regularly, publicly, and fully provide information about securities.

Intermediary principle: Transactions between investors and issuers are conducted through securities companies.

Centralization principle: Transactions only occur at the stock exchange, closely monitored by state management agencies.

Trading hours

The Ho Chi Minh City, Hanoi, and UPCOM exchanges operate from 9:00 to 11:30 in the morning and 13:00 to 15:00 in the afternoon, from Monday to Friday (excluding weekends and holidays).

How to read stock price tables

When participating in trading, the price table is the most important part that F0 investors need to understand:

• Green color: Price increase compared to reference price
• Red color: Price decrease compared to reference price
• Yellow color: Price equal to reference price

How to buy and sell stocks

Investors can execute transactions in two ways:

• Manually placing orders on trading software
• Placing orders through a brokerage firm

How to open a trading account

Before opening an account, investors need to:

• Research and choose a securities company with reasonable transaction fees
• Pay attention to margin ratio and interest rate on margin loans
• Prepare necessary information: address, email, phone number, bank account

Investors can open accounts directly at securities companies, banks, or brokerage firms. After opening, the company will provide an account number and instructions for depositing money. With a balance of 500,000 VND or more, investors can start buying and selling stocks.

Important notes when participating in trading

Vietnam’s market has three main exchanges: HOSE (sàn HCM), HNX (sàn Hà Nội), and UPCOM (sàn for unlisted public companies). Additionally, many international exchanges operate in Vietnam. Regardless of the chosen exchange, investors must:

• Select reputable exchanges with long-standing operations
• Ensure the exchange is managed by domestic securities authorities or international regulators (ASIC, FCA, SEC, CySEC, etc.)
• Master the three basic orders: ATO, ATC, LO before learning more complex orders

Conclusion

To succeed in stock trading, F0 investors need to equip themselves with comprehensive stock knowledge, from basic concepts to trading techniques. Understanding the market structure, financial instruments, industry-specific terminology, and operational rules will help you make smarter investment decisions.

The learning journey is continuous. Besides mastering fundamentals, investors should keep learning, accumulating experience, and updating market information to respond swiftly to stock market fluctuations.